How Obamacare's $716 Billion in Cuts Will Drive Doctors Out of Medicare

THE VILLAGES, FL - AUGUST 18: Republican Vice Presidential candidate, U.S. Rep. Paul Ryan (R-WI) (R) and his mother Elizabeth Ryan wave during the Victory Rally in Florida at Town Square, Lake Sumter Landing on August 18, 2012 in The Villages, Florida. Ryan spoke about his family's reliance on Medicare. (Image credit: Getty Images via @daylife)

There are 600,000 physicians in America who care for the 48 million seniors on Medicare. Of the $716 billion that the Affordable Care Act cuts from the program over the next ten years, the largest chunk—$415 billion—comes from slashing Medicare’s reimbursement rates to hospitals, nursing homes, and doctors. This significant reduction in fees is driving many doctors to stop accepting new Medicare patients, making it harder for seniors to gain access to needed care. Here are a few of their stories.

(DISCLOSURE: I am an outside adviser to the Romney campaign on health care issues, but the opinions in this post are mine, and do not necessarily correspond to those of the campaign.)

Paul Wertsch is a primary physician in Madison, Wisconsin. In 1977, he and his two partners invested $500,000 of their own money and opened their own practice, the Wildwood Family Clinic, on the east side of town. Wertsch’s clinic is popular with the seniors who go there, but over time, Medicare’s fee schedule has made it harder and harder on the practice.

Wertsch billed Medicare $217 to care for a Medicare patient with a sinus infection whose appointment ran late, because the patient required more time. Medicare reimbursed the clinic for $54.38. Later in the day, a younger patient with the same sinus infection, requiring half the time, was charged the same $217. But his private insurer reimbursed the clinic for twice the amount of Medicare: $108.04.

“I love taking care of Medicare patients,” Wertsch told the Capital Times, a progressive paper in Madison. “But every time we treat them we have to dig into our wallets. What kind of business model is that?” Today, Medicare patients represent one-quarter of Wildwood’s practice overall, and as much as 70 percent for some of the clinic’s veterans, like Wertsch. In 2011, Wildwood decided to stop accepting new patients from the Medicare program.

Wildwood was the first clinic in the Madison area to stop taking new Medicare patients. But, nationally, doctors like Wertsch are increasingly common.

‘Well, honey, it’s just going to get worse’

Joseph Shanahan is a rheumatologist in Raleigh, North Carolina. Shanahan told his local ABC affiliate, WTVD, that he was one of the few rheumatologists left in the Research Triangle area who accepted Medicare patients. “The reimbursement is so low [with Medicare]—in some cases 60, 80 dollars—it costs you more to get a plumber to come to your house than to get a rheumatologist to come to the hospital,” he said.

This spring, Shanahan decided to stop taking new Medicare patients. “Not by choice,” said Shanahan, “but I’ve got to pay off the business loan I got, and I got to pay my staff, and I got to pay my malpractice insurance.” Shanahan reiterated what you hear from a lot of doctors: that they don’t want to stop taking new patients, but the government has left them no choice. “I don’t do medicine for the money,” he explained. “I never got into it to get rich. The real reward in medicine is taking care of patients and making them feel better.”

Steve Daniels, a reporter with WTVD, led an investigation into problems with Medicare access in North Carolina. A team of volunteers used the “mystery shopper” method, posing as Medicare beneficiaries looking for a new doctor. Of the 200 family physicians they called, nearly half said that they were no longer accepting new Medicare patients.

“I have had many friends who have moved down here to retire and they cannot find a physician to take them,” said one of WTVD’s volunteers. “It’s very sad because they are coming down here to start a new life, a lot coming to be closer to families, and they have medical problems. Unfortunately, they’re finding that no one wants to take them.”

Beverly Frake was one of those people. Frake moved to North Carolina in 2010 from upstate New York, to escape the northern winters, and to be closer to her daughter, who lived in the area. “I moved into this nice apartment complex, big medical complex across the street, I thought, ‘How lucky am I?’” she told Daniels. “And I went there and was told in the waiting room, well they just don’t take Medicare patients. One of the receptionists said to me, ‘Well honey, it’s just going to get worse.’”

Medicare’s problems have been building for decades

These problems with the Medicare program predate the passage of Obamacare. For decades, politicians have been wrestling with Medicare’s runaway costs. Conventional fixes, like raising the retirement age, reducing benefits, or raising premiums were considered politically toxic. So instead, Congress sought the path of least resistance: paying doctors and hospitals less to provide the same level of service.

In 1988, Congress instituted a new system of price controls, called the Resource-Based Relative Value Scale, or RBRVS. Designed by an acclaimed Harvard health economist, William Hsiao, experts thought that the RBRVS system would succeed in controlling Medicare spending. It didn’t. Doctors, especially specialists, compensated for being paid less per-service by performing more services.

In 1997, Congress tried to fix the RBVRS using a new system called the Sustainable Growth Rate, tying growth in physician fees to growth in the size of the nation’s economy, as measured by GDP. That didn’t work either. As Medicare spending continued to grow at a faster pace than the economy, the SGR law required Congress to reduce Medicare fees accordingly. But both parties in Congress, at the behest of the American Medical Association, routinely overrode the SGR provision with costly “doc fix” legislation.

Obamacare significantly worsens the Medicare access problem

The AMA supported Obamacare, on the promise that the law would include a permanent “doc fix.” But Democrats reneged on that promise, owing to the cost of a permanent SGR adjustment: something on the order of $200 billion over ten years, depending on the prescribed growth rate of the fees.

Instead, the Affordable Care Act further reduced fees to health care providers, by $415 billion over the 2013-2022 time frame. As these reductions go into effect, more and more physicians are certain to stop taking new Medicare patients. We already see this problem with the Medicaid program for low-income Americans, where doctors don’t accept Medicaid patients, leading to poor health outcomes.

But Cutter’s assertion the law doesn’t cut benefits only makes sense if you don’t count getting a doctor’s appointment as a “benefit.” And her argument that the provider cuts merely amount to eliminating “waste, fraud and abuse” displays a callous disregard for how the law’s blunt, across-the-board payment reductions affect doctors like Joseph Shanahan, and seniors like Beverly Frake.

In 2011, the Department of Health and Human Services attempted to conduct an investigation into the problem of physicians opting out of Medicare. But they had to shutter the inquiry, because the government doesn’t “maintain sufficient data regarding physicians who opt out of Medicare.”

A memorandum sent by the lead investigator to acting Medicare chief Marilyn Tavenner concluded that the problem is getting worse. “Based on the limited data that we received, the number of opted-out physicians appears to have increased each year from 2006 to 2010,” wrote the inspector. “More physicians may opt out in the near future.”

If you want to reduce waste, increase choice and competition

The Romney and Wyden-Ryan plans for Medicare reform do far more to get at the problem of waste, by using the tried-and-true methods of choice and competition. The plans use competitive bidding to challenge insurers, and traditional Medicare, to pay doctors whatever they want to pay, while providing a Medicare benefit package at the best possible price.

A similar method is already used in the Medicare prescription-drug program, or Part D, which has, remarkably, come in more than 30 percent under Congressional Budget Office projections for its fiscal cost. This year, the program actually reduced premiums, relative to 2011: something that almost never happens in government health-care programs.

Instead of a politically-motivated, one-size-fits-all, across-the-board fee cut, the Romney approach allows competing insurers to negotiate with hospitals and doctors to gain the optimal combination of access and price. Under a competitive bidding system, insurers are likely to pay primary care physicians more, while bearing more scrutiny upon the wasteful, costly procedures that drive Medicare spending higher.

The key to putting Medicare on a fiscally sustainable path isn’t to take a sledgehammer to the program, as Obamacare does, and ration care from above, but to make structural improvements that give seniors and their doctors the bottom-up incentive to avoid wasteful spending.

So far, many media reports have displayed confusion about these concepts. But if we have an honest debate between who should control Medicare’s health dollars—bureaucrats or seniors—I have a feeling as to which side will win.

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Comments

You mean we can’t reduce costs and maintain benefits by just stopping to pay the doctors? Great details and stories in this piece, thanks. Here’s what I’m still missing on the Ryan plan. If it doesn’t change anything for people under 55, how does it stop Medicare from going bankrupt in 12 years? Just by putting this $700B back in the system?

Thanks Avik. I understand the long-term idea. Regarding the short term, the only thing I found in your posts was your recognition of the problem. “One other deficiency in the plan is that it takes too long to work. In order to honor the promise that there will be no Medicare changes for those older than 55, the plan kicks in in 2023. However, Medicare is slated to go bankrupt in 2020 (if you believe the Congressional Budget Office) or 2016 (if you believe the Medicare actuary).” An external link you provided gives Ryan’s answer. He seems to cut spending on current seniors “by taking common-sense steps that fall short of structural reform, e.g., means-testing premiums, etc.” and “combining Medicare Parts A and B deductibles and creating a new catastrophic cap to limit out-of-pocket spending.” Admittedly, I’m not sure what that means. But it seems to imply that “No one over the age of 55 would be affected in any way” is not completely true. Right?

Anon, out of all the comments mine is the one you flag as liberal? I support Romney / Ryan. But my question is on the near-term bankruptcy. The costs for the boomers don’t kick in until 10 years after the law is passed, right? So how do those cuts stop the program from going bankrupt in 12 years? Ryan’s answer seems to be that his plan IS making some changes for current seniors. Romney’s plan may be a bit different. I don’t know. Is the key that Congress will increase the deficit to fund Medicare until it turns the corner? Still waiting for an answer.

The same competition that is now forcing young people out of a college education because of increasing costs? At one time, loans were made to students in the interest of the country…no such noble ideas anymore, now it is either profitable or not. I understand we’re talking healthcare and not education, but the same principle applies…turning over everything to organizations that have only one goal is not the answer.

That was also the competition leverage in the health exchanges for Obamacare. When they compete however they compete to drive costs up. Services routinely paid by insurance companies are charged at a higher rate than services paid out of pocket by the patient. I have seen this happen over and over. Here it looks like the doctors and hospitals are working the system for a simple plan to charge as much as possible. from your article…”Instead of a politically-motivated, one-size-fits-all, across-the-board fee cut, the Romney approach allows competing insurers to negotiate with hospitals and doctors to gain the optimal combination of access and price.” Competing hospitals,doctors and insurance companies will NEVER work out charges that don’t don’t put them first. This is not competition. This is a kind of price fixing that puts patients at a disadvantage because they are not part of the final determination. Trying to score big points on the healthcare debate and and beginning with a disclaimer that your arguer in chief is an adviser for Mr. Romney is just a stupid tactic for selling a position.